Deliveroo Australia spared growing loss by $20m from parent Roofoods

Deliveroo Australia received a $20.7 million support payment from its UK parent in 2017, but the food delivery start-up still made a $4.2 million loss after tax as it invested heavily in a new 'dark kitchens' business.

The 'market support income', revealed in Deliveroo Australia's calendar 2017 accounts, topped up revenue of $41.2 million and prevented it spiralling to a loss bigger than the $21.3 million after tax incurred in calendar 2016. That loss came off $11.4 million revenue.

The accounts note that market support from Roofoods Ltd, the London-based parent, is payable when Deliveroo Australia's operating margin falls below the "lowest quartile" of a benchmarked range, in line with OECD transfer pricing guidelines.

Deliveroo Australia was spared mounting losses by a $20m support payment from its London parent. James Brickwood

However the $20.7 million payment was not a rescue mission, said Deliveroo Australia general manager Levi Aron.

"Last September we raised $500 million globally for the purpose of expanding and growing, and in Australia that means our 'Deliveroo Editions' business, where we fund purpose-built, delivery-only kitchens that help our restaurant partners more precisely meet the demand our data tells us is there," he said.

Mr Aron said this investment partially explained a hundredfold increase in financing costs in 2017, to $3.5 million, the result of an inter-company loan.

The Australian subsidiary recorded 'costs of delivery service' of $36.2 million in 2017, 88 per cent of revenue, and there is the prospect of this becoming even higher if it is forced to no longer treat delivery riders as independent contractors, and provide them minimum conditions proscribed by the Fair Work Act as recommended by a Senate inquiry last year.

Deliveroo Australia has previously said the average earnings for its 3600 riders were above the minimum wage, and it placed no restrictions on riders delivering for competing platforms like Foodora or Uber Eats, even while they were fulfilling a Deliveroo 'session' which they pre-book online.

A heavy investment in delivery-only kitchens will put Deliveroo Australia on a more sustainable footing, said general manager Levi Aron. Simon Schluter

Mr Aron said these sessions sought to ensure there was never an oversupply of riders in a particular area at a particular time. He denied they resembled the 'shifts' of traditional employment, as riders weren't penalised for not turning up, although he noted most did or at least arranged for another rider to swap in for the session.

Deliveroo Australia already provides Workcover insurance to its riders, and Mr Aron said it would like to offer conditions like sick pay, however this needed to be in the context of a new class of employee relationship which enshrined the flexibility he said drivers were demanding.

The higher margins from the fast-growing Deliveroo Editions division would help the entire Australian business on to a more sustainable footing, said Mr Aron, who launched Deliveroo here in November 2015.

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The accounts revealed Deliveroo Australia had 99 employees - Mr Aron said that had since grown to 120 - and had consolidated gross assets of $11.3 million.

Deliveroo's partnerships with Australian restaurants resulted in the restaurants creating 1800 new jobs in 2016-17, according to a Capital Economics report the start-up commissioned last year.

Any extra conditions imposed on Deliveroo's treatment of its riders should not hamper the innovation which in itself was helping them make more money, Mr Aron said.

For instance he claimed average delivery times had reduced 20 per cent over the past year thanks to Deliveroo's investment in its algorithm, which uses machine learning - a technology that allows software to become more accurate in predicting outcomes without being explicitly programmed - to evaluate the most efficient way of distributing orders based on the location of restaurants, riders, and customers.

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Michael Bailey writes on Leadership, specialising in Entrepreneurs, Innovation and Startups. Based in our Sydney newsroom, Michael was deputy editor, then editor of BRW between 2011 and 2016. Connect with Michael on Twitter. Email Michael at m.bailey@afr.com.au